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Understanding different types of debt

Understanding different types of debt

It is important that you understand the difference between priority and non priority debt and understand which ones you must deal with first and how to deal with them.

If you find yourself in debt, make sure that you seek advice and do not ignore the problem as it will only get worse.

Dealing with priority debts

The most important debts aren't necessarily the biggest ones. Priority debts are ones where serious action can be taken against you if you don't pay what you owe.

Priority debt tend to be:

  • Mortgages and secured loans
  • Rent
  • Tax, National Insurance and VAT
  • Tax credits overpayments
  • Council Tax
  • Utility bills
  • Loan shark loans
  • Hire purchase (HP) debt

A court could use bailiffs to come into your home and take your goods away if you have unpaid:

  • Business Rates
  • Magistrates’ court fines (eg speeding fines)
  • Maintenance and child support payments

Your goods would be sold to pay what's owed. If you still owe money after this, it's possible you might be sent to prison, though this is rare.

Non-priority or credit debts

You are unlikely to lose your home or go to prison for not paying 'non-priority' or credit debts. However, you can still be taken to County Court and ordered to pay what you owe - often with extra costs on top. Examples of non-priority debts include:

  • credit card or store card arrears
  • catalogue debts
  • water rates arrears
  • bank overdrafts and loans
  • personal loans with finance companies
  • money borrowed from friends or family

It is important to plan your way out of debt and understand The emotional effects of debt.

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